Higher corporate tax rates worked in B.C., critics say

If the right-of-centre British Columbia government can raise its corporate tax rate, how about Alberta? That’s a question critics are asking in the wake of the spring budget that hits ordinary Albertans with a plethora of new taxes.

Premier Jim Prentice is defending his decision not to raise Alberta’s corporate taxes, citing fear of job losses in uncertain economic times.

But critics say that didn’t happen when the Liberal government of B.C. Premier Christy Clark raised its corporate tax to 11 per cent in April 2013, generating an extra $250 million.

That increase put B.C.’s rate one point higher than Alberta’s rate of 10 per cent — the lowest in the country — said Gil McGowan of the Alberta Federation of Labour.

Throughout that year, B.C. jobs increased by 12,200, he added.

Tax policy expert and economist Jack Mintz, who advised Prentice on corporate tax policy, said a similar one-point increase in Alberta would send a negative signal on the already uncertain economy.

As well, it would provoke 9,000 job losses for each point upward, said Mintz, director of the School of Public Policy at the University of Calgary.

Those figures are based on Mintz’s tax modelling from a 2010 research paper. At a request from the premier’s office, he provided updated figures for Alberta, said Mintz, adding he has also advised Ontario on corporate taxes.

Mintz also noted that corporate tax increases are passed on to consumers in higher prices and can lead to layoffs.

A one-point increase would bring in about $300 million to $400 million, he said.

Compared to Alberta’s 10-per-cent corporate tax rate, Saskatchewan and Manitoba have a 12-per-cent rate, while Nova Scotia and P.E.I. are highest at 16 per cent. Ontario’s corporate tax rate is 11.5, Quebec’s is 11.9 and Newfoundland’s rate is 14 per cent.

Kevin Mulligan, an economist at the University of British Columbia, said the one-per-cent increase there has not had a “massive impact” on the provincial economy.

“A point or two would not be the end of the world,” he said. “But these things are sensitive.”

Alberta is in the midst of economic uncertainty with oil prices below $50 a barrel, he said. The government will want to make sure the rest of the economy is strong.

Also, many companies move their profits to lower-tax places when tax rates shift.

While Alberta is the low tax haven here, Quebec, for instance, has other incentives that lure some companies to that province, he added.

“Those lower tax jurisdictions don’t exist,” said McGowan, as all provinces have a higher corporate tax rate than Alberta.

Fear of job losses is also overblown, he said. While all jobs are important, a potential loss of 8,000 jobs in a labour force of 2.3 million working people is not a large number.

McGowan noted that 80 per cent of Alberta companies qualify for the small business tax rate (less than $500 million in revenue) and no one is suggesting that rate (five per cent on profits) be raised, he added. The spring budget predicts a decline of about 20 per cent in corporate tax revenue to $4.5 billion, from $5.7 billion in the last fiscal year.

Prentice said Friday he’s not repudiating former premier Ralph Klein with a budget that ditches Alberta’s flat tax on income and boosts a host of other taxes. But he said there is no appetite in Alberta for the deep spending cuts made by Klein’s Tory government in the 1990s.

“We have to be smart in how we do it. We are not making cuts across the board because this would simply hurt all of us,” he told a Red Deer Chamber of Commerce luncheon.

Prentice told the audience of about 300 people that his government would also not cut capital spending as was done under Klein because Alberta fell behind in building schools, roads and hospitals.